HUD Multifamily Loans in Texas

Texas is Harper Capital Partners' largest market. Our select transactions include 17 Texas financings totaling more than $270 million across Dallas-Fort Worth, Houston, Austin, San Antonio and smaller markets from Wichita Falls to the Rio Grande Valley: Section 223(f) acquisitions and refinances, Section 223(a)(7) streamlined refinances, Section 221(d)(4) new construction, and an interest rate reduction.

Texas transactions

How HUD financing works for Texas properties

HUD processes Texas multifamily applications through its Southwest Region, based in Fort Worth.

• Stabilized properties: Section 223(f). Acquisition or refinance, up to 35 years, fixed rate, non-recourse. Market-rate properties size at a minimum 1.15 debt service coverage ratio and up to 87% loan-to-value (80% with cash out).
• New construction and substantial rehabilitation: Section 221(d)(4). One fixed rate through construction and a 40-year term after it, sized at a 1.15 DSCR and up to 87% loan-to-cost for market-rate projects. Construction cannot start before HUD's initial endorsement without HUD approval.
• Recently built properties in lease-up. A property financed conventionally during construction can move to a 223(f) once it has a final certificate of occupancy and has achieved the required DSCR for one full month, with additional lease-up conditions. With the volume of recent Texas deliveries, this is often the fastest route from a construction loan to permanent HUD debt.
• Existing HUD loans: Section 223(a)(7). Refinance an existing HUD-insured mortgage into a lower rate with minimal new underwriting. Six of our 17 Texas transactions were 223(a)(7)s.

What we see in Texas

• Property taxes drive Texas underwriting. Texas has no state income tax and relies heavily on local property taxes, and a sale commonly leads the appraisal district to reassess toward the purchase price.
• Tax-exempt structures have to be built for HUD. Public facility corporation and housing finance corporation partnerships, where a governmental entity owns the property and leases it to the developer, are common in Texas. HUD can recognize the tax exemption, but it generally takes a Regional Center Director waiver, recorded affordability restrictions and a ground lease of at least 50 years from the date the mortgage is executed. Structure it with HUD in mind from the start and it works.
• When an abatement ends before the loan does, HUD underwrites full taxes. On some deals a loan term shortened to match the abatement produces more proceeds than a full 35-year term at full taxes. We run it both ways.
• Insurance. Wind and hail losses have pushed premiums up on the Gulf Coast and across much of the state.
• Lease-up product. Many recent Texas deliveries are good candidates for the conventional-construction-to-223(f) path described above. The key date is the final certificate of occupancy.

Texas FAQ

Which HUD office processes Texas multifamily loans?

HUD's Southwest Region, based in Fort Worth, Texas. The region also covers Arkansas, Iowa, Kansas, Louisiana, Missouri, Nebraska, New Mexico and Oklahoma.

Can a newly built Texas apartment community still in lease-up get HUD financing?

Yes, through Section 223(f), once the property has its final certificate of occupancy and has achieved the required DSCR for at least one full month. Additional conditions apply until the property has 3 years of operating history.

Does HUD finance ground-up construction in Texas?

Yes, through Section 221(d)(4), as long as construction has not started before HUD's initial endorsement (absent a HUD-approved early start). Once construction begins with other financing, the path to HUD is a 223(f) after completion.

Please contact us to discuss a Texas property. 347.916.9750 │ info@harpercap.com